Rent to rent or guaranteed rent guide for Landlords

Landlord guide

What is rent to rent?

Under a rent to rent or guaranteed rent arrangement, you the owner landlord would enter into a commercial agreement with an individual or company, who becomes ‘the agent landlord’, for a specified time in return for a guaranteed monthly rent.

The agent then rents the property out to a tenant and manages the tenancy.

The agent landlord makes their money on the difference between the rent they pay you and the rent they receive from the tenant(s) who live in the property.

Most rent to rent arrangements promise to cover any void periods and legal fees for breach of the tenancy. This can be attractive to landlords who want a hands-off investment with guaranteed income. However not all agreements offer the same benefits, so it’s important to check.

How the arrangement should be set up

The agent should provide you as the owner landlord with a commercial lease agreement and NOT an assured shorthold tenancy (AST) as the agent is not going to live in the property.

The agent will then become the landlord for the sub tenant(s) and will be responsible for

• serving any notices
• dealing with any tenancy agreement breaches

The commercial agreement will generally be from 1 to 5 years and should make it clear:

• that you are entitled to a guaranteed rent from the agent on a specified date
• that the agent has the right to rent out the property
• who is responsible for repairs
• how the commercial agreement will end

There should be an early termination clause with the agent in case your circumstances change, and you need your property back.  

Be aware that some agents who allow early termination may look for compensation for their ‘loss of profit’ for the time left of the agreement.

By entering into this type of agreement the agent landlord effectively becomes the landlord of the property, or the rooms in the property, that are to be let out to tenants. The agent will be managing the property, and the tenants will deal with the agent directly. Any deposits received from the tenants should be protected by the agents in a government authorised tenancy deposit protection scheme such as mydeposits.

Rent to rent benefits for landlords

Sometimes agent landlords or even tenants will sublet a room in a property without permission from the landlord or owner of the property. This is breaking the terms of their agreement and in some cases, they could be committing a criminal offence.

If you are thinking of instructing an agent to take over managing your property, make sure:

• you check with your lender that you are allowed to enter this type of arrangement if you have a buy -to -let mortgage
• your property is fully compliant. You as the owner landlord have statutory responsibilities which cannot be transferred to the agents, even though the agent can carry these out on your behalf. Examples include gas safety, health and safety, electrical checks etc. Check out the government website for more information here
• your landlord insurance allows you to enter this type of arrangement
• that the agents PI insurance allows them to act in the landlord capacity, not just as letting/managing agents
• you ask what experience the agent has in property management and trading as a rent to rent operator
• before signing over your property, you research the financial status of the company/individual and get references from other landlords that have used this service, as well as checking out online reviews
• you are clear what type of tenancy the agent proposes using, to rent to the sub-tenants, and get written confirmation that they intend to rent to a single household or rent individual rooms.
• agree a maximum occupancy in terms of how many people can live in the property

Top tips to remember:

• The money that the agent collects from the tenant is not client money and if the agent does not pay you the rent, or disappears, you cannot claim on a client money protection scheme the agent may have joined for its standard lettings business
• If the property becomes a House in Multiple Occupation (HMO) because of the arrangement, you as landlord will be legally responsible for any local authority licensing requirements so check this with the agent and take advice if necessary

Questions to ask the agent

• Do they belong to a consumer redress scheme such as Property Redress?
• Do they have valid professional indemnity insurance and Client Money Protection?
• Will you be paid the agreed rent, even if there are void periods?
• Who is responsible for legal fees if the sub-tenant defaults?
• What happens if you need your property back before the end of the agreed term?

What is our approach to 'rent to rent’ complaints?

Where an agent has joined Property Redress and a landlord raises a complaint about a rent to rent arrangement, we will expect the agent to engage with us and try to resolve the complaint. We will be able to offer an opinion on how it should be settled.

However, our authority to enforce any decision we make is limited, as the relationship between the agent and owner landlord is a commercial one and the agent is technically the tenant’s landlord rather than agent.

If the complaint is still unresolved, after using our process, then you should take legal advice to explore the possibility of using the court process and use our decision.

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